Research

The M&A Mix Tape … A Lyrical Guide to a Successful Exit

I am an M&A advisor – I help growing technology companies raise private equity and/or advise them through M&A transactions. But I am also a huge music fan. While looking through my iTunes library recently, I realized that I had a treasure trove of mantras for the successful tech entrepreneur going through a transaction. So, with a nod to the lost 80’s art of creating a killer mix-tape, here’s my take on …

A Dozen Things About M&A You Won’t Find Out Until It’s Too Late Playlist

Stronger (What Doesn’t Kill You) — Kelly Clarkson Due diligence checklists are a bitch – and there’s never only one. You will get one from the advisor (me), from the buyer, from the buyer’s attorneys, from the buyer’s tax counsel. You get the idea. Pay your CFO well because s/he’s going to take the brunt of trying to find that agreement that you signed three years ago that’s missing a page.

Taxman — Beatles You probably owe state sales tax somewhere – you didn’t know it, and didn’t pay it, but you will. Did you go to a conference in Texas, set up a demo booth and land a sweet SaaS deal? Do you have a regional sales person living out of Chicago when your HQ is in Palo Alto? Ask around, buyers will question these things.

Bright Future In Sales — Fountains of Wayne Any bonuses you pay to execs out of the purchase price will have a matching corporate payroll tax that comes off the top of the deal price, and you forgot to calculate it in your back-of-the-envelope waterfall analysis.

Waterfalls — TLC Speaking of waterfall calculations – the way the purchase price flows through to the shareholders – it seems like easy math; purchase price, less debt, less preferences, etc. However, it very much matters to the smallest shareholders that is accurate and precise (obvs…)

Deep Blue – Arcade Fire Your outsourced, offshore Development team may not have the correct worldwide, evergreen IP assignment in place and the copyright (read: code) may be only good for that country and 5 years. You may need to re-paper the master services agreement and get everyone to sign newly drafted IP agreements.

Sign Your Name Terence — Trent D’Arby You have at least one agreement where you don’t have a documented counter signature. Start looking for it now. IP assignment agreements from contractors that might have touched code tends to be a gotcha.

You Can’t Always Get What You Want — Rolling Stones Almost every deal point can be solved with realistic risk allocation and indemnification. Pick the top three things you want (upfront deal price, short escrow period, good terms for people) and try to be flexible, within normal constraints, on the rest. Somewhere on your team is a person that wants to fight for every, single point. That’s great, and necessary. Don’t let that thinking torpedo the deal.

You Got Lucky — Tom Petty & The Heartbreakers Your private company tolerance for risk and winging it is a LOT higher than a public company buyer’s risk profile. Accept that you got lucky in the past, and that there may be costs associated with being more cautious in the future – and those might be attached to your forecast.

Treat you better — Shawn Mendes It’s often better to do the deal with the buyer that wants you more, and that excites your team, than it is to go with the company that offers the best price on paper. Figure out how to risk-adjust the purchase price. Will the deal be caught up in regulatory review? Does the buyer have ready capital on its balance sheet? Will your people leave because of the buyer’s corporate culture?

She Works Hard For The Money —Donna Summer Deal expertise (attorneys, tax specialists, R&W Insurance, and yes, bankers) may cost more than you anticipated, but will end up being worth more than you imagined in time saved, disaster averted or flat out price increases.

********************

Tricia Salinero has completed 75+ technology mergers and acquisitions valued at nearly $4 billion over her 25-year banking career with deals ranging from $10 million to $2 billion. She has sold companies to industry leaders such as, Google, Oracle, Microsoft, Red Hat, Tibco, Autodesk, Softbank, and Mentor Graphics. You can find her on Twitter @Tisal